Personal Finance Tips

There’s much debate around the healthcare system reform proposed by President Barack Obama. And while there are many people who protest against it, and those who support it, it is important to know what it is all about in the first place. Here is a short overview of the reform, which is comprised of three essential parts:

1. Assure all American citizens with access to comprehensive and affordable health coverage

The main features of this part are:

• New Public National Health Plan, which will be very close to the current health coverage provided to federal employees. The main difference is that the new plans will be available to all US citizens for a reasonable price no matter of their financial situation. Deductibles and co-payments will be reduced to minimum, while low-income persons will have the possibility to use additional subsidies.
• National Health Insurance Exchange, which will allow US citizens to look for private health plans. It will set regulations on private insurance providers in order to make sure that private plans are not too different form public ones.
• New business mandate requiring national enterprises to pay for the Public National Health Plan.
• Individual mandate aimed specifically at children.
• More support provided to existing programs like Medicaid and SCHIP.

2. Improve the quality of healthcare services and lower their costs

This initiative presumes federal financial assistance for improving the quality of the services and lowering the costs, with additional assistance to enterprises that cover high-risk employees.

To President’s belief the following actions may also contribute to lowering cost and improving services:

• Special disease management programs for improving chronic care.
• Improving transparency in what concerns quality and costs of healthcare offered by providers.
• Lowering the rates of medical errors.
• Introducing financial incentives to stimulate substantial improvements.
• Providing support for researching new and alternative healthcare technologies.
• Eliminating ethnic disparities in access and quality of healthcare services.
• Popularizing health IT.
• Stronger regulation of insurance and drug markets in order to lower medication costs and allow cheap health insurance.
• Preventing Medicare private plan participants from overpaying.

3. Wellness and healthy lifestyle promotion

This initiative is to be supported through the following actions:

• Special wellness programs at working places.
• Eliminating child obesity with school activities.
• Better education for present and future healthcare workers.
• Promotion of healthy lifestyle in communities.

Saving possibilities with the new initiatives

President Obama estimates that in average a typical American family will be able to save about $2,500 on an early basis after the plan will be implemented. These are the possible sources for such savings:

• Health IT introduction and implementation.
• Improved quality of services.
• Limitations on health insurance provider profits.
• Federal funding of catastrophic coverage that will lead to cheap health insurance.
• Universal coverage availability.

As you can see the Plan requires significant federal funding and that is one of the major points of those who are against it. Other arguments include direct implication to health insurance market, which of course is not quite welcome by the insurance companies. But is the idea of cheap health insurance for everyone that bad?

Perhaps this is an unnecessary statement of the obvious, but the point of insurance is to give people a financial safety net. Should an emergency or disaster strike, money you would struggle to find is paid out by your insurance company. But the squeeze has been on for the last decade as medical costs and the prices of essential drugs have been rising fast. In fact, so fast that the insurers cannot pass on all the increases to their policyholders. It was hard to raise premium rates while the economy was doing well. It became impossible to raise premiums when the recession hit without there being investigations by each state’s Commissioners for Insurance and complaints from everyone else.

There comes a point when the insurer cannot get any more blood from the stone and has to sacrifice profits. This has left the medical profession, the hospitals and clinics in a winning position, while the pharmaceutical industry’s profits have continued to rise despite the recession. At the other end of the spectrum, the patients are the losers. There are some who discover the small print in their policies denies cover for the very illnesses they have. There are others whose savings are not enough to pay the deductibles and co-payments. And then there are those whose policies are cancelled when they make a claim for a chronic disease or disorder.

There is a new piece of research from the Commonwealth Fund, an independent, non-profit body. In 2007, it carried out a detailed survey among 2,600 people aged between 19 and 64. When their coverage was analysed, 20% were found significantly underinsured. Why was this happening? Because they were already spending more than 10% of their income on health coverage, whether as premiums, deductibles or both. When the underinsured were added to the uninsured, this represented 42% of adult Americans. Like the uninsured, this forces the underinsured to think twice before they have treatment with more than half either refusing treatment or struggling with debt because of treatment.

In the push for healthcare reform, the focus has been on the uninsured. But this fails to recognize the injustice suffered by the underinsured. No one should be forced to choose between refusing needed treatment and potential bankruptcy. It is therefore going to be an interesting year in prospect as the reform slowly comes into force. Both the poor and the middle class need access to cheap health insurance with reasonably comprehensive coverage. This will further squeeze the insurance industry because it will be denied the right to refuse coverage to those with pre-existing conditions and will be forced to establish group health insurance for those who have struggled to find affordable plans. In all of this, the key to success will be the ability of government and the insurers to impose more control over costs. President Obama has negotiated with the pharmaceutical industry and there is some agreement to hold down prices for those in Medicare and Medicaid. The for-profit healthcare industry also sees some self-interest in moderating its price increases and has given undertakings to the Administration. If some of the pressure is removed from the insurance industry, premium rates will stabilize and the reforms should offer a more fair system to all with a health plan. We can only hope for the best while we wait and see what happens.

Many people are complaining about their health insurance costs, having a dramatic increase in rates over a short period of time. Some policyholders have noticed that their rates increased by 30% over the last two years and that definitely rings a bell, when a good portion of your income is spent on health insurance. In this time when every spare dollar counts, people are looking for ways to minimize their expenses and insurance, whether health, car or homeowners, is the first thing that comes in mind when cutting costs. Some people choose to drop health coverage altogether, ending up with astronomic bills for any medical service they get. Others are more careful with their decisions and first investigate what other types of health insurance can bring to the table. Here are some things to consider if you want to minimize your insurance costs.

Should I get individual or group health insurance plan?

There are a lot of questions about group and individual health insurance. Of course, group plans are very convenient in the sense that you can insure your entire family and pay out a single premium rather than have multiple separate policies, which only multiply the annoying paperwork. However, group health insurance usually has higher rates as it should guarantee that even high risk customers within the group have adequate coverage. This, of course, makes the healthier group members pay for the risk they share with the less healthy members. Such a situation can be acceptable if there are different health issues among different members. But if your family is healthy in general it would be more cost effective to purchase separate individual policies for each member, because the rates in individual plans are based on your particular health situation and if it’s OK then you will get much lower rates than with a group health insurance plan.

Outline your exact insurance needs and get an appropriate plan

If you are looking for cheap health insurance you first have to determine what your exact insurance needs are. Analyze your conditions, see how often you go to the doctor and what particular services you are using most frequently, and choose a plan that gives you the base rates for your exact needs. With so many different plans out there on the market you should definitely find the one that will give you cheap health insurance and will address all of your needs to the proper extent.

Finding cheap health insurance while self-employed

Those workers who are self-employed often find it hard to get adequate coverage for a low price. The group health insurance benefits that an employer can give their workers don’t apply here, and in most cases self-employed specialists have to go with independent individual health insurance plans that can sometimes be quite expensive. However, if you are leaving a workplace with good group health insurance benefits, you may fall under COBRA regulations in certain circumstances and continue receiving group health benefits while already being self-employed. If your previous employer didn’t have any group health benefits, it would be better to go independently.

If you have been asking questions about healthcare coverage you have definitely heard about health savings accounts (HSAs). Some people advocate that they are the next step in the domain of health coverage, while the others believe that only healthy and rich citizens can benefit from such plans. Before answering these questions it is better to learn what HSAs are in essence and how do they work.

What is a HSA?
A typical health savings account is comprised of two elements:

1) Savings account with interest bearing:
– Yearly deposits of up to $2,900 ($5,800 in case of a family) introduced to the savings account are to be taxed. The money deposited will usually roll over on a yearly basis. However, the money you withdraw from the account for healthcare purposes are tax-free. So are any withdrawals after you officially retire.

2) Healthcare coverage plan with a high deductible
– The minimum deductible amount should be not less than $1,100 ($2,200 in case of a family). That is the amount of money to be paid out-of-pocket before getting the actual benefits.

– When the annual deductible is paid the actual coverage kicks in. You will have to pay all the specified co-insurance and the plan will cover all that remains.

– The overall amount of money to be paid out-of-pocket is limited to $5,600 ($11,200 in case of a family). In other words, after you have spent $5,600 on healthiness services your insurance company will pay for all health costs exceeding that amount.

What are the pros of health savings accounts?
– Because of the fact that any money withdrawn for healthcare use is not taxed, HSAs are a good way of saving more money in your pocket.
– In case you keep the funds without withdrawing them from the account you will have more money after you retire. And since you can freely withdraw the money for any reason after you turn 65 it is a good additional source of retirement money.
– Cheap health insurance plans with higher deductibles have lower premiums than typical plans.
– HSAs don’t depend on your working place and you will keep it the same no matter what.

What are the cons of healh savings accounts?
– Those who have substantial needs in healthcare services will find little use in HSAs since they provide main benefits when the money is kept in the account for an extended period of time.
– People with serious health issues will find it hard to get high-deductible insurance plans, especially if they were already denied of typical plans.
– Some HSAs have additional fees that in sum can make the plan quite costly for the customer.
– Because of high out-of-pocket expenses people tend to go without care, which usually results in complications and more serious and expensive health concerns.

Will a HSA be useful for me?
In case you have no serious health problems and are able to pay the required out-of-pocket expenses than HSAs will definitely be a good option for you. However, you must understand that HSAs require you to be more conscious about your medical costs and the coverage provided by these accounts is much less comprehensive and diverse than with typical health insurance plans. Having an active position in managing own healthcare is a must with HSAs, so if you’re not ready for that then it will be not of a much use to you.

Fee-for-Service or indemnity plans are the oldest type of health coverage out there, providing you with the greatest extent of flexibility. You are absolutely free to choose the doctor, specialist, surgeon or even the place you will receive your medical service from and it doesn’t require any approvals or referrals from other institutions. So what’s the catch?

The drawback of Fee-for-service plans is that they are quite costly and usually have higher deductibles than managed care plans. Besides, you will also have to pay a large part of your actual medical bill out of pocket. That’s the price you have to pay in order to obtain the flexibility provided by these plans. But this doesn’t mean that there are completely no restrictions with fee-for-service plans.

For instance, fee-for-service health insurance plans will not provide coverage for preventive healthcare services, meaning that any vaccinations, regular check-ups and physical exams will be paid for entirely out of the customer’s pocket. This makes fee-for-service plans quite inconvenient for families who need regular medical services and doctor consulting.

Fee-for-service plans require an annual deductible to be paid in order to receive the coverage benefits from the insurance provider. Once you do so, your medical expenses are distributed between you and the insurance carrier. You will usually pay something between 20% and 30% of the entire service fee and your insurance company will cover the rest. So it’s really important to choose a plan that has a smaller co-insurance (the part you have to pay out of pocket) before actually purchasing it.

With most fee-for-service plans you also have the so-called “caps” that are basically the upper limits of your yearly deductibles. These can be anything from $1,000 to $5,000 not taking your monthly premiums into account. So it’s better to see what your plan carries before signing it if you really want cheap health insurance with fee-for-service.

On the other hand, fee-for-service plans offer comprehensive and timely coverage when you need it, especially when there’s a medical emergency. You are completely free of the bureaucratic restrictions and setbacks of typical managed care plans that can turn down any desire to receive medical assistance in the first place. However, bear in mind that fee-for-service plans won’t be suitable and attractive for everyone. If you want to get comprehensive coverage for preventive care or have a large family with diverse healthcare needs you better investigate managed care plan options instead of indemnity plans.

And don’t forget about comparison shopping when purchasing fee-for-service coverage. Try to get as many health insurance quotes from different providers as possible and compare them in detail. You will be surprised to find out that different companies have different premiums, “caps” and co-payments that will all contribute to the final cost of your insurance coverage. So it’s always better to take some time comparing you options rather than complaining that you have a costly insurance plan after purchasing it.